2023 (7) TMI 1254 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained cash credit which was not disclosed in the financial statement filed by the assessee - distinction between a belief and suspicion of escapement of income - HELD THAT - In the present case, the mere information of cash deposit, we hold, could not by itself have lead to formation of belief of escapement of income. The decision in the case of Mariyam Ismail 2016 (8) TMI 1472 - ITAT AHMEDABAD and Bir Bahadur Sijwal 2015 (2) TMI 60 - ITAT DELHI being rendered in identical backdrop of facts holding cash deposits being insufficient information to lead to belief of escapement of income, the said decisions squarely apply to the present case. As per the reasons recorded, the assessee had filed his return of income for Asst. Year 2010-11 and 2011-12. AO formed belief of escapement of income for the said two years. In his reason recorded, the AO has not even mentioned the income which the assessee had returned to tax in these years. We fail to understand that without taking note of the quantum of income returned to tax, how could the AO have formed belief of escapement of income to the extent of cash found deposited in the bank account of the assessee. In the circumstances, the return of income disclosed sufficient income returned to tax so as to justify cash deposited in the bank account of the assessee, there could not have been any possibility of formation of belief of escapement of income. Even as per the reasons recorded, the reopening was resorted to by the AO to verify source of cash deposited. It is settled law that reopening cannot be resorted to make fishing and roving inquiries and for verification purpose. For the above reasons, therefore, we hold that the reasons recorded for reopening of the case of the assessee were not sufficient to form belief of escapement of income and jurisdiction assumed by the AO, therefore, to frame assessment under section 147 of the Act was bad in law. The order passed, as a consequence, in all three appeals by the AO, is held to be invalidly passed and accordingly set aside. Jurisdiction assumed by the AO to reopen the case of the assessee in all the years impugned before us, was invalid. Assessment orders passed for all the years are accordingly set aside. Decided in favour of assessee.

Issues Involved:
1. Validity of assessment framed under section 147 of the Income Tax Act, 1961.
2. Sufficiency of reasons recorded by the Assessing Officer (AO) for reopening the assessment.
3. Jurisdiction assumed by the AO to reopen the case.
4. Relevance of subsequent events in validating the reopening of the case.

Detailed Analysis:

1. Validity of Assessment under Section 147:
The primary issue raised by the assessee in all appeals was the challenge to the validity of the assessment framed under section 147 of the Income Tax Act. The assessee contended that the reopening of the assessment to verify cash deposits was "absolutely bad-in-law." The Tribunal found merit in the assessee's contention that the information with the AO was not sufficient to form a belief of escapement of income. The AO's reason for reopening was based solely on cash deposits found in the bank account, which the Tribunal held could not lead to a belief of income escapement but at best to a suspicion. Therefore, the reopening of the assessment was deemed invalid.

2. Sufficiency of Reasons Recorded by the AO:
The Tribunal scrutinized the reasons recorded by the AO for reopening the assessments for the years 2010-11 to 2012-13. The AO noted cash deposits in the bank account but did not specify where and how such disclosure was mandatorily required. The Tribunal highlighted that without a mandate to disclose the source of deposits, the non-disclosure could not infer a failure to disclose material particulars of income. The Tribunal referred to the decision in Mariyam Ismail Rajwani vs ITO, which emphasized that reasons for reopening must have a rational connection with the formation of belief of income escapement. The Tribunal concluded that the reasons recorded by the AO were insufficient for forming a belief of income escapement.

3. Jurisdiction Assumed by the AO:
The Tribunal held that the jurisdiction assumed by the AO to reopen the cases was not in accordance with the law. The AO's reasons for reopening were primarily to verify the source of cash deposits, which the Tribunal noted could not be a basis for reopening as it amounted to fishing and roving inquiries. The Tribunal reiterated that reopening cannot be resorted to for verification purposes and that the reasons recorded must indicate an income escaping assessment, not merely the need for further inquiry.

4. Relevance of Subsequent Events:
The Tribunal addressed the CIT(A)'s reliance on subsequent events and non-compliance by the assessee to justify the reopening. The Tribunal emphasized that the basis for assuming jurisdiction is the AO's belief at the time of reopening, based on the information available then. Subsequent events or non-compliance cannot strengthen the reasons recorded for reopening. The Tribunal rejected the CIT(A)'s basis for upholding the validity of the AO's jurisdiction, stating that reasons for reopening must be read as recorded without any additions or deletions.

Conclusion:
The Tribunal set aside the assessment orders for all the years as invalid, holding that the jurisdiction assumed by the AO to reopen the cases was invalid. The Tribunal also dismissed the appeals of the Revenue as infructuous since the assessment orders were set aside. The decision relied upon by the CIT(A) in the case of Sridevi was distinguished as not applicable to the present case. The Tribunal's order was pronounced on 6th March 2023 at Ahmedabad.

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